Proposed Amendment to Articles of Incorporation

Proposed Amendment to Articles of Incorporation Regarding the Distribution of the Stock of a Subsidiary

The Board of Directors of Telephone and Data Systems, Inc. has approved and recommends to the shareholders a proposed amendment to Sections II and III of Paragraph 2 of Article IV of the Articles of Incorporation of the Company. The full text of the proposed amendment is set forth in Exhibit "B" attached hereto and each shareholder is encouraged to read the proposed amendment in its entirety.

Background--Common and Series A Common Share Dividend Rights

The Articles of Incorporation of the Company expressly provide for the manner of payment of cash and stock dividends to the holders of Common and Series A Common Shares of the Company. Under the Company's Articles of Incorporation, after the satisfaction of all Preferred Share dividend preferences, the holders of Common Shares are entitled to receive such dividends as may be declared from time to time by the Board of Directors. No cash dividends may be declared or paid on the Series A Common Shares of the Company unless the same, or greater, dividends, on a per share basis, are declared and paid at the same time on the Common Shares. In the case of dividends paid in either Common Shares or Series A Common Shares, the holders of Common Shares and Series A Common Shares are required to be paid the same dividends per share, except that the Board of Directors is authorized to distribute Common Shares to the holders of that class and Series A Common Shares to the holders of that class.

Reasons for Proposed Amendment

Under Iowa law, the Board of Directors of the Company may declare a dividend payable in the shares of another corporation. Typically, such a dividend is paid in the form of the stock of a subsidiary owned by company in a so-called spinoff.

The Articles of Incorporation of the Company do not contain a provision specifically addressing the rights of the holders of Common and Series A Common Shares in the case of a spinoff. Because each of the classes of common stock of the Company possess different rights, limitations, and preferences with respect to voting, the payment of dividends and the election of directors, the Board of Directors believes that a provision specifically addressing the distribution by the Company of shares of a subsidiary having two classes of stock should be set forth in the Company's Articles of Incorporation. The proposed amendment will provide such a procedure.

The purpose of the proposed amendment is to require that, if the Company establishes any of its subsidiaries with two classes of common stock similar to the Company's Common and Series A Common Shares and then distributes, by way of a spinoff, the subsidiary's shares to the Company's shareholders, the holders of the Company's Common Shares will be entitled to receive common stock in the subsidiary, possessing similar rights, preferences and limitations to those of the Common Shares of the Company; and the holders of the Company's Series A Common Shares will be entitled to receive common stock in the subsidiary, possessing similar rights, preferences and limitations to those of the Series A Common Shares of the Company. Thus, the rights of the holders of Common and Series A Common Shares vis-a-vis each other with respect to the spun-off corporation would be similar in all material respects to their rights vis-a-vis each other with respect to the Company. As a result, the holders of the Company's Series A Common Shares, including the Trustees of the Voting Trust described under "Security Ownership of Management" below, should be able to maintain voting control of the subsidiary following the spinoff and, thereby, continue to have the power to determine the spun-off subsidiary's policies, programs, and management direction. If this control by the holders of Series A Common Shares could not be maintained, then it is unlikely that the holders of Series A Common Shares, who elect 75% of the Company's directors, would be willing to support a spinoff of any of the Company's subsidiaries.

Typically, a spinoff involves the distribution of the shares of an existing or newly created subsidiary to a corporation's shareholders in the form of a property dividend, thereby creating a separate publicly traded company. Because investors may view the performance and prospects of each of the Company's major business operations-telephone, cellular and radio paging--differently, the separation of one or more operations would provide investors with clearer investment alternatives. Moreover, a spinoff can be an excellent means of enhancing shareholder value because the investment community frequently values individual business units greater than it values the same units as part of a larger entity. If higher values were placed on the separated business units, they in turn would be able to obtain equity financing on a more favorable basis. Finally, the Company's operating subsidiaries are subject to federal and state regulation, in some cases with respect to rates they may charge and rates of return they may earn. Future changes in the regulatory climate may make it desirable to separate some business units from the others.

The Company has no present intention to distribute the shares of any of its subsidiaries, in the manner contemplated by the proposed amendment, or otherwise. If adopted, however, the amendment would enable the Board of Directors to implement such a distribution without further shareholder approval unless the distribution involved all or substantially all of the Company's assets, in which case shareholder approval of the distribution might be required under Iowa law. The proposed amendment also provides for the possibility of such a distribution being made in connection with the liquidation and dissolution of the Company, which would be subject to shareholder approval under Iowa law.

Description and Effect of Proposed Amendment

If the proposed amendment is approved, the Board of Directors would be authorized to distribute to Common and Series A Common Shareholders shares of a subsidiary that has two classes of common stock with each class possessing respective rights, preferences and limitations that are similar in all material respects to the respective rights, preferences and limitations of the Company's Common and Series A Common Shares, subject to certain exceptions discussed below. The class of common stock of the subsidiary similar to the Company's Common Shares would be paid to the extent practicable to the holders of the Company's Common Shares and the class of common stock of the subsidiary similar to the Company's Series A Common Shares would be paid to the extent practicable to the holders of the Company's Series A Common Shares. In any event, the same number of shares of stock of the subsidiary, on a per share basis, would be paid with respect to each of the Company's Common and Series A Common Shares.

The effect of such a spinoff would be to cause the shares of the subsidiary owned by the Company to be directly owned by the shareholders of the Company rather than indirectly through the Company. The rights of the holders of Common and Series A Common Shares vis-a-vis each other with respect to the spun-off corporation would be similar to their existing rights vis-a-vis each other with respect to the Company. Thus, the holders of Common Shares would have one vote per share and the same dividend rights they now have. They would also be entitled to elect 25% of the directors of the spun-off corporation. Similarly, holders of Series A Common Shares would have ten votes per share and the same dividend rights they now have, and they would be entitled to elect 75% of the directors of the spun-off corporation. However, certain rights of the two classes of the subsidiary's common stock may be different than those of the Company's Common and Series A Common Shares (1) in order that one class of the subsidiary's common stock may be eligible to be publicly traded, (2) due to the differences in the laws of the states of incorporation of the Company and the subsidiary, or (3) if differences apply equally to both classes of the subsidiary's common stock. It is the judgment of the Board of Directors that this arrangement with respect to a spun-off entity would be fair to both classes of the Company's common shareholders.

Shareholder Vote Required and Effectiveness of Amendment

The adoption of the proposed amendment will require the affirmative vote of a majority of the Company's outstanding Common Shares, voting as a class; a majority of the Company's outstanding Series A Common Shares, voting as a class; and a majority of the votes of the Company's outstanding Common Shares, Series A Common Shares, and Preferred Shares, voting without regard to class. If the amendment is approved by the necessary vote of the shareholders, it is expected that a Certificate of Amendment to the Articles of Incorporation setting forth the amendment will be filed as required by Iowa law promptly after the Annual Meeting. The amendment will be effective upon such filing.

The Board of Directors recommends a vote "FOR" approval of the proposal. Proxies not designated as to choice with respect to the proposed amendment will be voted "FOR."

ARTICLE IV, PARAGRAPH 2, SECTIONS II AND III OF ARTICLES OF INCORPORATION OF TELEPHONE AND DATA SYSTEMS, INC.

(Portions unaffected by the amendment are in plain type, new language is in italics and portions deleted are in brackets.)

II. Dividends.

The holders of Preferred Shares of each series shall be entitled to receive, when and as declared by the board of directors, dividends, at the rate fixed for such series, and no more, payable in quarterly installments on the first days of March, June, September, and December in each year. Dividends on Preferred Shares shall be cumulative from and after the respective dates of issuance. No dividends shall be declared on the shares of any series of Preferred Shares for any dividend period unless the full dividend for all prior dividend periods shall have been declared or shall be declared at the same time upon all Preferred Shares outstanding during such prior dividend periods. No dividends shall be declared on the shares of any series of Preferred Shares unless a dividend for the same period shall be declared at the same time upon all Preferred Shares outstanding during said period in like proportion to the dividend rate upon such shares. No dividends shall be paid on the Common Shares unless full dividends on the Preferred Shares for all past dividend periods, and for the current dividend period, shall have been declared and the corporation shall have paid such dividends or shall have set apart a sum sufficient for the payment thereof. No dividends shall be declared or paid on the Series A Common Shares unless the same, or greater, dividends, on a per share basis, are declared and paid at the same time on the Common Shares; provided, however, that if at any time a dividend is to be paid in either Common Shares or Series A Common Shares on either Common Shares or Series A Common Shares, such dividend may only be paid as follows:

(i) Common Shares may be paid to holders of Common Shares and proportionately to holders of Series A Common Shares;

(ii) Series A Common Shares may be paid to holders of Common Shares and proportionately to holders of Series A Common Shares; or

(iii) Common Shares may be paid to holders of Common Shares and Series A Common Shares may be paid proportionately to holders of Series A Common Shares;

and in the case of any such stock dividend the board of directors may permit both the holders of Common Shares and the holders of Series A Common Shares to elect to receive cash in lieu of stock; and provided, further, that at any time a dividend is to be paid on Common Shares and Series A Common Shares in two classes of common stock (the "Subsidiary Common Shares" and the "Subsidiary Series A Common Shares") of a subsidiary of the corporation (the "Subsidiary"), with the Subsidiary Common Shares and the Subsidiary Series A Common Shares having relative rights, preferences and limitations vis-a-vis each other that in the judgment of the board of directors, are similar in all material respects to the relative rights, preferences and limitations of the Common Shares vis-a-vis the Series A Common Shares (except for any variations in rights, preferences and limitations that are (i) necessarily to enable the Subsidiary Common Shares to be traded on an exchange or through the NASDAQ System or (ii) due to differences in the laws of the states of incorporation of the corporation and the Subsidiary or (iii) equally applicable to the Subsidiary Common Shares and the Subsidiary Series A Common Shares), then Subsidiary Common Shares shall be paid to the extent practicable to the holders of Common Shares and Subsidiary Series A Common Shares shall be paid to the extent practicable to holders of Series A Common Shares, provided that the same number of shares on a per share basis shall be paid on Common Shares and Series A Common Shares.

III. Certain Provisions Relating to Liquidation.

In the event of any dissolution, liquidation or winding up of the corporation, whether voluntary or involuntary, the holders of the then outstanding Preferred Shares shall be entitled to receive the fixed amount payable in such event plus a sum equal to the amount of all accumulated and unpaid dividends thereon at the dividend rate fixed for such shares; after such payment to the holders of Preferred Shares the remaining assets and funds of the corporation shall be distributed pro rata among the holders of the Common Shares and the Series A Common Shares; provided, however, that if the remaining assets and funds of the corporation include two classes of common stock (the "Subsidiary Common Shares" and the "Subsidiary Series A Common Shares") of a subsidiary of the corporation (the "Subsidiary"), with the Subsidiary Common Shares and the Subsidiary Series A Common Shares having relative rights, preferences and limitations vis-a-vis each other that, in the judgment of the board of directors, are similar in all material respects to the relative rights, preferences and limitations of the Common Shares vis-a-vis the Series A Common Shares (except for any variations in rights, preferences and limitations that are (i) necessary to enable the Subsidiary Common Shares to be traded on an exchange or through the NASDAQ System; (ii) due to differences in the laws of the states of incorporation of the corporation and the Subsidiary; or (iii) equally applicable to the Subsidiary Common Shares and the Subsidiary Series A Common Shares), then Subsidiary Common Shares shall be distributed to the extent practicable to the holders of Common Shares and Subsidiary Series A Common Shares shall be distributed to the extent practicable to holders of Series A Common Shares, provided that the same number of shares on a per share basis shall be distributed with respect to Common Shares and Series A Common Shares. A consolidation, merger, or reorganization of the corporation with any other corporation or corporations, or a sale of all or substantially all of the assets of the corporation, shall not be considered a dissolution, liquidation, or winding up of the corporation within the meaning of these provisions.

Telephone and Data Systems, Inc. 3/31/88